July 17, 2014 / 12:22 PM / 3 years ago

RBI issues draft rules for small banks in financial inclusion push

MUMBAI (Reuters) - The Reserve Bank of India (RBI) on Thursday issued draft guidelines for those seeking a license to set up a payments banks or a small bank, as part of its efforts to expand banking services to more businesses and poor households.

A cashier (L) counts currency notes as customers wait inside a bank in Hyderabad March 22, 2010. REUTERS/Krishnendu Halder/Files

The minimum paid up capital required for both categories of bank licenses would be 1 billion rupees ($16.62 million) of which the promoter would have to contribute at least 40 percent initially, the RBI said.

Payments banks can accept deposits and remittances of funds but cannot provide loans. Small banks can lend, but have more limited areas of operations than a full-fledged commercial lender.

The guidelines are part of the RBI’s push to set up smaller banks that can more easily penetrate into India’s hinterland and increase lending to farmers, small traders and businesses.

“Both, payments banks and small banks are ‘niche’ or ‘differentiated’ banks, with the common objective of furthering financial inclusion,” the RBI said in the draft rules.

The RBI in April granted its first two bank licences in a decade in a country where half the households are still outside the banking system.

The central bank had said then it would move to grant bank licences more regularly and would work on a policy for having “differentiated” bank permits.

Under the guidelines provided on Thursday, mobile phone carriers, super-market chains, co-operatives, and non-banking financial companies will be eligible to apply for permits for setting up payments banks.

Meanwhile, resident individuals with ten years of experience in banking and finance, companies and societies, non-banking finance companies and micro-finance institutions will be eligible for setting up small banks.

Details of the draft rules - bit.ly/UdIhpT

($1 = 60.1800 rupees)

Reporting by Himank Sharma and Devidutta Tripathy; Editing by Rafael Nam

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